USMCA: A Step in the Right Direction
On January 16, 2020, the United States – Mexico – Canada Trade Agreement (USMCA) passed, opening doors to future trade and to job growth in the United States. The USMCA will replace the North American Free Trade Agreement, better known as NAFTA, and experts anticipate the creation of more than 176,000 U.S. jobs as a result of the new regulations the USMCA will put into place. While experts do not agree on how beneficial the agreement will be to American workers, most expect the creation of some tangible benefits in the near future, particularly in agriculture, technology, manufacturing, and pharmaceuticals.
The hope for the USMCA is that it will bring about a return to economic stability, sparking more predictable trade and enabling companies to grow and plan for the future. While nothing is certain, the passing of the USMCA came as a much-needed relief after the Trump administration’s continued threats to pull out of NAFTA without replacing the trade agreement. The USMCA may not be perfect, but it ensures that companies, large and small, will not face unprecedented shifts in trade policy or unexpected tariffs for the time being.
According to the Trump administration, the goal of the USMCA is to spur economic growth and bring manufacturing jobs back to the U.S., particularly in the automotive industry. They attempt to ensure this future through upping standards for organizations that qualify for zero tariffs and setting standards for pay. The USMCA dictates that in order for an automotive company to qualify for zero tariffs they must have 75% of their parts made in the U.S., Mexico, or Canada, up from the previous 62.5% dictated by NAFTA. In addition, 30% of the manufacturing done must be by workers making a minimum of $16/hour, and in 2023 that percentage will go up to 40%. This sets a higher standard, particularly for organizations paying low wages in Mexico.
For small businesses, the USMCA will provide a voice. For the first time, the trade agreement between the U.S., Canada, and Mexico includes policy specifically geared toward propping up small and medium-sized businesses, giving them the opportunity to grow and opening the doors to entrepreneurship. The USMCA will reduce red tape and eliminate redundancy, making changes like eliminating the “local presence” requirement for organizations to do business in different countries. Now, businesses will no longer have to open offices in Canada and the U.S. to do business in both countries.
In addition, the USMCA will address modern issues. It will address the realities of the digital economy and provide policy to limit data localization requirements and allow companies to cut costs and ease friction in these areas. The trade agreement will also provide a foundation for farmers and those with food-related businesses by opening the door for more opportunities to export.
No matter your industry, the USMCA seems to be a step in providing a foundation for small and medium-sized businesses; providing opportunities for entrepreneurship, organizational growth, and expansion across North America. While the regulations may have wider impacts on trade and costs of merchandise in the U.S., it seems that it’s a step in the right direction for supporting the American worker and small businesses.